An Indian Plastic Credits system

Dr. Praveen Aggarwal , CEO, AARC - Action Alliance for Recycling Beverage Cartons

Mihir Oak , Associate Manager, Public Policy, Consocia Advisory

In this blog from our series on plastic credits system, we will try to establish an operational plastic credits system tailored to the Indian plastic waste market. This blog concludes our journey of policy research and analysis in the credit systems space, starting from gauging the problem with plastic recycling and waste management in the country, diagnosing why this is such a hard problem to resolve, and analysing the requirements necessary to ensure that the system we design and propose is robust and effective.

In the first blog, we touched upon the problem of improper handling of plastics at the end of their life cycle, and provided some statistics to elaborate on how this contributes to the vast problem of plastic pollution seeping into the environment on every possible scale. We also fleshed out the actors in the system. We followed that with addressing the real and conceptual difficulties in getting plastic producers (PIBOs) to process the pollution they are creating, and how plastic waste management actors (WMAs) also fall short because of the lack of funding in our second blog. We explained the problems with externalities, and why the lack of property right, or the ownership of the problem, makes it difficult to enforce its handling. We also studied the European carbon credit and the East Asian Palm Oil credits markets.

In the third blog, we distilled our observations from the literature into concrete attributes that would ensure the success of the system. These attribute were quantification (of the externality – which, in this case, is plastics pollution), transparency and centralized exchange, backed by federal rules which assign ownership of the problem to those creating it, and ensuring that there is enough flexibility with credit pricing that credits may be traded with relative ease.

In this blog, we talk about the how our findings from the three previous blogs translate into the Indian plastic credits system, with a robust design and effective execution.

There is a value associated with PWM in India, but at present, this value is insufficient to create a market for waste recycling and material and energy recovery. There is a value gap between rhetoric and reality. A plastic credits mechanism, bespoke to the Indian economy, will be crucial to facilitate the creation of a plastic waste management market between brands, WMAs, and government players, therefore bridging the value gap. The plastic credits system is a novel idea and not thus far implemented in the WMA ecosystem. It is, therefore, rather important to recognize that the system will face certain challenges in transforming the rhetoric of efficient, economical, and accountable PWM into reality. Operationalising the aspects we have condensed for the successful implementation of a credit system, a plastic credits system that encourages Extended Producer Responsibility (EPR) can be introduced and operated.

Structure

The Central Pollution Control Board (CPCB) is the central regulatory authority for pollution and waste management in India. It has defined different types of plastics and the associated management activities, and outcome-oriented targets. According to the CPCB guidelines, plastics are differentiated into the following categories:

·??????Cat 1: Rigid Plastics

·??????Cat 2: Flexible Plastics

·??????Cat 3: Multilayer Plastics (MLPs)

Another type of plastic that is contemporarily in wide use but is not yet considered by the CPCB is Cat 4: PBBCs (Paper-Based Beverage Cartons). These are also majorly used in beverage packaging, and must either be included as a separate category. Or Cat 3 could be revised to recognise non-recyclable MLP as distinct from recyclable MLP, such as in beverage cartons, for comprehensive coverage.

The CPCB further classifies different PWM activities that PIBOs can undertake as a part of their EPR activities. These include End of Life Activity (EoL), which includes incineration for energy recovery; Efforts for Multilayer Packaging, including material separation; Material Recovery; and Energy Recovery. Lastly, the CPCB defines three outcome-oriented targets for PWM, which are Target I: Collection; Target II: Recycling, and Target III: Reuse.

According to our proposed system, if actors in the plastic industry (PIBOs and WMAs) can perform any of these PWM activities on any of the different plastic categories and meet or exceed the targets set by the CPCB, they will generate credits based on the quantum of the surplus plastics processed by them. These credits can then be exchanged with other PIBOs which require more credits, in exchange of funding.

The principle of additionality will be an important consideration here – in that PIBOs will be assigned credits to exchange if and only if they can match and exceed the CPCB-mandated targets for plastic waste management activity.

In 2019, the CPCB launched a portal unifying PIBOs and PWMs to issue a credit system based on EPR. This portal is critical because it facilitates and enables many of the factors required for a successful implementation of the credit system. The portal provides a centralized platform for PIBOs and PWM organizations, which act as buyers and sellers of the credits. The platform can enable the regulation of plastics credits trade and will help inform the best method to optimize the system and ensure funds for more effective and efficient PWM.

PIBOs in India can quantify and register the amount of plastic they are producing, of which types, and their consequent recycling activity for each plastic type. This ensures a comprehensive quantification of plastic waste management activity, facilitates credit generation, and helps in making the incentives for the plastic credits more realistic and effective. Simultaneously, the presence of the portal removes informal trading within PIBOs and PWMs, and ensures that there is double-entry bookkeeping of the trade systems. The end-to-end process documentation on the portal will be simple yet comprehensive, further incentivizing its use by PIBOs and WMAs The portal, therefore, theoretically makes quantification, transparency, and incentive-pricing more efficient. While the system can be designed keeping in mind very specific targets in terms of plastic production and waste reduction, the implementation of the regulatory systems will need to be developed synchronously and comprehensively, to make sure that the rhetoric of the credit system’s intent matches with the reality

Credit Pricing and Valuation Mechanisms

We scope out three mechanisms the CPCB can use to determine the value of each credit that is generated through PWM activity. These are:

A.????The CPCB decides on the floor price of each credit and decides the regulations of exchange;

B.????The CPCB decides to use a hands-off approach, and lets the brands collaborate and decide on the prices of the credits and the rules of trading themselves;

C.????A bidding system, where the pricing rules are based on supply and demand, and there is no restriction for market entry for smaller firms (smaller firms will be able to sell because they will be issued credits), and the CPCB merely maintains the exchange platform and records the trade of credits.

We believe that a pricing mechanisms based on alternatives B. and C. will be ideal to service the contemporary Indian plastic markets

The CPCB is responsible for prescribing the base market and compliance conditions for the actors, such as the minimum retail of price of credits (As a point of reference for optimisation, this could be set at a nominal Rs X thousand per ton of PWM activity); and the minimal quantum of PWM conducted to qualify the brand for trading their plastic credits is currently set at 70% of the brand’s production. This limit will be revised to 100% in the next fiscal year.

Conclusion

The Indian plastic credits system converges all the necessary factors to be an effective and robust system of financial and credit exchanges. It incentivizes PIBOs and WMAs to better their plastic waste management processes, and especially to PIBOs to meet and exceed their EPR regulations set by the CPCB. This system monetizes, and indeed offers avenues for profit for a problem that has so far been neglected and un-possessed.

We believe that following these principles, the CPCB can ensure that PIBOs and WMAs not only help make the country plastic neutral, but may also encourage these players to become plastic positive.